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I think i'm on to something really good here. When Obama took office many people planned for the worst recession since 1929. We were expecting a great depression and in some respect we still are. Many people immediately started to hoard cash, which in some respects is stupid, if you believe the government is planning to print money, to pay for the expansion, because it will lead to inflation etc. However, the savings rate increased rapidly from 2% to 6-7%, which is great in the long term. The short term effects are consumers stopped spending. However, the great thing about savings meant, that the over-leveraged consumer, also took advantage of paying down their debt and getting their balance sheet in line. The great benefit of the fall in housing prices, is consumers are no longer able to access even more credit. They are now in a position to get their house in order and emerge significantly with less debt. What many pundits on CNBC and other news out-lets are not point out is that the reduction in credit is certainly bad for the expansion of business, but, because the consumer was over leverage, it was actually a good thing for the consumer (the consumer that was able to keep his/her job, which is most consumers).
Now, this is why an increase in the savings rate could potentially save this economy and get us back out with a boom. How long will consumers keep hoarding US dollars? How long until their personal expenses are back in line? Well, the best thing is that consumers, will now, be spending cash, they will not be accumulating debt, when the recovery in consumer spending starts. As they begin to spend cash, jobs will eventually recover, savings rates will fall, and more money will flood back into the business sector. We live for credit, but perhaps, it is time for the consumer to wake up and realize, they cannot consistently over extend themselves. Sure, American Express, Visa, and a number of credit lending companies will suffer, but we are at a point where consumers and businesses need to get their house in order, so the great correction in over-leveraged balance sheets for consumers hit us and due to fear people are actually doing the right thing. Isn't the free market great?? Anyone see this as a possibility or am i the only one?
The stock market recognizes this and is a forward looking indicator -(supposedly 6-12 months ahead)
I think the market is also expecting more money to enter the system (which means everything rises, stocks, prices, wages, and consumer demand) etc ...Mark my words 2012, we'll be way out of the recession and the economy will be growing at a very robust rate!!
The consumer will lead the way again!!!!
In the words of Kudlow "We are in the midst of the NEW BULL MARKET"
- Lower the Social Security and Medicare Tax
- Offer an Investment Tax Credit In Capital Expenditures
- Change and allow for Rapid Depreciation over the next 3-5 years
-Don't increase taxes on citizens directly (print the f*king money to pay for your stupid programs) -trust me this will get us out of the recession faster, but will cause a lot of our wealth to disappear faster, but it is a quick fix and most citizens do not understand economics (beyond supply/demand) well enough to protest against it.
In my opinion lowering these taxes will generate jobs and a faster recovery!!!
And there's this: "Karen Weaver, global head of Deutsche Bank's securitization research division -- responsible for analyzing credit default swaps, collateralized mortgage obligations, and other exotic Wall Street products -- said last week that 48% of U.S. mortgage owners will end up owing more than their home is worth by 2011. The figure may have left many Americans wondering how this could be possible. But consider that 27% of U.S. homeowners with a mortgage are already "underwater." Interview with Deutsche Bank about 'underwater' mortgages - Aug. 12, 2009
The picture is much bigger than the here and now, but a lot of people seem to be myopic.
How can consumers lead the way when they have no money and limited "credit" to spend ?
You answered you own question.
1. Reduction in consumer leverage
2. Higher savings rates
How long do you think that is going to last?
Once Consumers have paid down their debt significantly enough don't you think they'll start to consider using the money they've saved to buy the big screen tv, the new car, the new whatever?
Money has not disappeared my friend, but the hypothetical value of wealth and the physical value of consumer debt is.
What's more important losing "hypothetical Wealth" you never actually physically had or losing debt something you physically had?
The lower your debt levels the higher your "real wealth"
To directly answer your question we don't want the consumer to have access to credit until they get their balance sheet back in order and reduce the looming debt they already have, which is what is happening.
VISA reported a decrease in their credit business, but an increase in their cash transactions. People are becoming smarter and more conservative about over-extending themselves again. This is a great thing, because, they are more interested in paying cash they have on hand today, then debt they can pay with tomorrow.
In other words those of you that hope the consumer does not return quick enough are actually arguing the right thing, but you're clearly not smart enough to realize it, because you think they advising consumers, to not spend is somehow hurting Obama, but it is not. It is helping the American consumer, so if the recovery is slow, so be it, but as long as consumer debt levels continue to decrease, I'm perfectly fine. The extra savings, will have to go somewhere, whether it goes to the stock market, public debt, or more consumer goods, it will not stay saved forever.
How can consumers lead the way when they have no money and limited "credit" to spend ?
I typically observe the level of shopping going on when I'm out for the day. This past weekend I went to Target, in a parking lot with Home Depot, Best Buy and a few other strip mall stores.
The parking lot was packed. That parking lot has not been that full since Target's grand opening at that location, a couple of years ago.
Next I went to WalMart for goods I knew I could find there and could not find at the stores I visited earlier (see above). The parking lot appeared to be about 90% full. I could only think of christmas but there were no decorations out.
It later occurred to me that it must have been the tax free weekend in Texas, thank you GWBush.
So HappyTexan, that's how consumers will lead the way out of the recession, supporting dorock99's theory of getting the government out of the way.
I typically observe the level of shopping going on when I'm out for the day. This past weekend I went to Target, in a parking lot with Home Depot, Best Buy and a few other strip mall stores.
The parking lot was packed. That parking lot has not been that full since Target's grand opening at that location, a couple of years ago.
Next I went to WalMart for goods I knew I could find there and could not find at the stores I visited earlier (see above). The parking lot appeared to be about 90% full. I could only think of christmas but there were no decorations out.
It later occurred to me that it must have been the tax free weekend in Texas, thank you GWBush.
So HappyTexan, that's how consumers will lead the way out of the recession, supporting dorock99's theory of getting the government out of the way.
Even Big Lot's was busy.
Walmart and Target, DO it your self stores like HD = recessionary spending.
Yes people are spending but the stores you indicate demonstrate a new consumer mentality.
When people start spending like its 1995 talk to me about increased spending.
Walmart and Target, DO it your self stores like HD = recessionary spending.
Yes people are spending but the stores you indicate demonstrate a new consumer mentality.
When people start spending like its 1995 talk to me about increased spending.
I think WillyB and Cleanhouse both have valid points. Consumer are spending on necessitates and consumer goods, that offer long term benefits and they have shunned the things they do not need. I think this is a great thing, because it means the consumer has wised up to overextending themselves.
Yes, in the near term, this will continue to hurt our unemployment level and we will continue to see high rates of unemployment, but like i said before, as the consumer get his/her balance sheet back in line and reduces debt, they will start to spend more. They'll have more money in savings, less money that they are spending to pay off debt, and the magical wealth that they have in terms of real-estate, will slowly start to go back up.
If magical wealth like real-estate start to go back up after they've de-leveraged, they'll have more "real" wealth. The only problem, that i see impeding on this wealth is inflation and significantly higher taxes, but the reduction in credit debt will benefit consumers big time in a few years.
Think about my income according to most statistics will remain flat, so the only thing out of my control that will destroy my wealth will be inflation. I can control everything else that is destroying my wealth such as
Credit Cards
Mortgage Payments (which are fixed over a 30 yr)
Household Spending
all i have to do is pay them off and spend less as a consumer. Now, once i feel comfortable, the money that i've also been saving up, i will start to spend back into the economy. The longer i save the more i have the more i'll purchase when i feel ready and confident. Oh and when the American consumer starts to purchase there is no force in the world as powerful!!!!!
Nothing grows exponentially forever, and the US economy requires just that to keep functioning. I don't know if now is the "big flush" or not, but it is comming very soon.
How can consumers lead the way when they have no money and limited "credit" to spend ?
Oh please.
Shortly after getting out of the army in 1972 I was looking for a job at at time there weren't any jobs.
From 1975 to 1978 things were great then crashed again in 1979. Around 1982 things picked up, by 1984 times were great and went on until 1990 when it crashed again. By 1993 it came out and times were wonderful nearly everywhere, except for the dot com bust, until 2001 when we had a little recession. By 2002 things were picking up and we had a great ride until 2008.
Notice the 7 good years always seems to be followed by 3 bad years?
Yeah, times are bad right now but it's nothing someone who is 60 or older hasn't gone through before at least four times before. It happens.
These things aren't bad and need to happen occasionally. They weed out the non-performing businesses and punishing those that did crappy work replacing them with companies that do better work for a cheaper price to the consumer. It is how we get so much for so little... it is why we enjoy the highest standard of living in the industrialized world.
As long as government doesn't stand in the way we'll be just fine in two to three more years and then get ready for 7 years of boom.
Nothing grows exponentially forever, and the US economy requires just that to keep functioning. I don't know if now is the "big flush" or not, but it is comming very soon.
To support your idea we'd first need no growth in our population and that ain't happening. Haha i know people hate to hear, but we'll have a great economy in the near future. You would have to be a few peanuts short of a full can, not to want your own domestic economy not to recover.
We are in this together folks, so the better my neighbor does, the better i do as well. The better the mom and pop shop in the town center does, the better we all do. The better the large corporation in the suburban retail space does, the better we all do. If you have not realized your success is just as dependent on your neighbor doing well, you have a lot to learn. Currently, what the economy is telling me my neighbor is getting his house in order and I'm happy, he/she is learning their lessons, for the short time, i'm sure in a few years, they'll be right back in debt to their heads, and the cycle will start all over again.
“Consumers are rational,” said Joshua Shapiro, chief United States economist at MFR. “They respond to incentives and conditions, and right now the conditions and incentives are: spend as little as you can, and pay down as much as you can. You hunker down. That’s what the consumer’s doing.”
SAN FRANCISCO, CA--(Marketwire - August 12, 2009) - Credit Karma (www.creditkarma.com), the consumer's advocate for demystifying credit, today released its U.S. Credit Score Climate Report with trend data for July 2009. For the fourth straight month, credit scores continue to level off and remain stable for many consumers. 37% of consumer credit scores have increased, 28% have decreased, and 35% remained the same. The current average U.S. consumer credit score is 673.
In addition, consumer debt has decreased. Amongst consumers with a credit card account, credit card debt continued to decrease by $120 in July. Consumers also continue to pay down home mortgage loans, student loans and auto loans. In July, the average consumer with an open account had:
-- $6,818 in credit card debt
-- $193,036 in home mortgage loans
-- $52,559 in home equity loans
-- $14,449 in auto loans
-- $26,368 in student loans
Last edited by dorock99; 08-19-2009 at 11:41 AM..
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